Recovery with no jobs puzzles economists
ECONOMY:Usual recovery pattern includes more overtime for workers before employers create new jobs, Nobel laureate says.
BY ALWYN SCOTT
SEATTLE TIMES

in economics in 2001, has criticized much of the thinking
about the boom period of the 1990s.

The global economy is on many people's minds these days as job growth languishes, headlines announce layoffs, jobs shift overseas and governments hammer out free-trade agreements that further open the world to globalization.

Joseph Stiglitz, who won the Nobel Prize in economics in 2001, has criticized much of the thinking about the boom period of the 1990s. He saw it up close as head of President Clinton's Council of Economic Advisers during much of that roaring decade. During Stiglitz's recent visit to Seattle, we asked him whether the economic changes of the 1990s threaten U.S. workers in decades ahead. Here's an edited transcript.

Q. We hear a lot about how globalization and deregulation are moving well-paid jobs overseas. Does that explain the jobless recovery?

A. Only in part. This is an unusual recovery, and I think even labor economists are finding it puzzling. The normal jobless recovery is really the following: Firms prefer to go on overtime before they start hiring workers because they'd rather pay a worker time-and-a-half than put up with the training cost and anxiety of hiring. That is why, typically, employment lags in a recovery.

What happened last quarter is that the number of hours worked was down by almost 1 percent. In a jobless recovery, the typical pattern is that hours worked go up because jobs aren't being created. This is a recovery in which hours worked aren't going up. That suggests it may not be recovery.

You're getting firms trying to squeeze more and more work out of workers, working fewer and fewer hours.

Q. Is that just cyclical or a long-term trend?

A. There was a trend in the '90s of ruthless cost-cutting. It may not be able to be sustained. The workers that you fire -- lay off -- you're going to have to retrain and rehire them eventually. The economy will grow again. There has always been a recovery. So I take that as a premise.

But that means it's a shortsighted strategy, where you see the profits today because you've gotten rid of a cost. You don't see the future expenditures and you hope maybe those future expenditures will be hidden by the fact demand will be high, prices will be high. So nobody will notice that. But you will undoubtedly need to be paying more for training workers.

Q. Now that white-collar and tech jobs are moving overseas, is the United States on a slide out of productive technical work? Is it going to accelerate?

A. What we're seeing is a recognition that there were some service jobs that are mobile. The computer programmers, the high-tech jobs that are going to Bangalore (India), or the call centers. But those are a small minority. The hamburger-flipper jobs, we are going to keep those. Because those have to be flipped at home. But also the chief executive officer jobs have to stay here. It does raise the question. I don't know the answer.

Q. Boeing is planning to outsource not just their manufacturing but also design work to Japan and Italy. What will be left in America -- CEOs and a handful of factory workers?

A. The airline industry is peculiar because of the offset structure. ("Offsets" refer to locating factories in other countries to encourage sales to that country.) But in general, I think we will find our niches and they will find theirs. And there is always going to be an anxiety as we go through that process. And in that process, it isn't obvious that we will be as relatively high-income as we have been in the past.

For instance, it could be that Italians, somehow because of their schools, wind up being better at designing lots of things. In that case, these high-end people will be moving to these countries that have the design.

Overall though, the United States still has the strongest university system in the world. I think that that has been an enormous pull for people to come here.

Q. Do you think the strong U.S. university system could lose its lead? China and India are attracting Ph.D. students who up till now have been coming here.

A. There is enormous inertia in the centers of intellectual strength in research universities. Harvard, Yale, Princeton, Columbia. Even in bad times, they get the best students, and because they get the best students they get to hire the faculty.

The answer is: It can change. If we underfund our universities, which we have been doing, people can go abroad. Cambridge and Oxford have lost an awful lot of people to American universities.

Other countries are realizing you can become a center of intellectual strength. You can buy a center of intellectual strength. What makes America more precarious is that we aren't producing at the high school and undergraduate level enough science majors to feed ourselves.

Q. How much of job cutting was "ruthless business" by companies saying "We want to do this," and how much was imposed by market forces and because everyone was doing it?

A. Both are at play. Most companies are under shareholder pressure to get the stock price up. It used to be that they could resist that shareholder pressure and say, "Look, we're going to create value in the long run."

I think what happened in the '90s was the stock-option movement meant the CEO's incentive was particularly myopic. He wanted the stock price up. So he wasn't telling his shareholders, "Look, I know what is good for the company in the long run." He said, "My strategy is to get my share price up today." If that meant lying, that was fine. Distorting information.

You get this system that was going on: The analyst came up with expectations, and you had to meet those expectations, and the job of the accountant was to move money around on the books to make sure those expectations were met. Everyone knew they were moving money around on those books.

Q. Is globalization a zero-sum game or is there some way all nations can benefit?

A. The general principle of trade is everyone benefits. Now, there are many circumstances where that general principle doesn't work, particularly when you don't have free and fair trade rules.

Countries are not being given the choice of rules. You say you have to open your markets. If you don't, here will be the consequences. The consequences are so dire they open their markets.

At that point, goods start flowing in. The guys who are buying the goods see (a benefit) from subsidized American corn or milk. But the people who lose their jobs are worse off.

If society as a whole isn't able to create new jobs, what you've done is move people from low-productivity jobs to unemployment. And that's not good for growth. That's not what's supposed to happen.

As you well know, jobs are a lagging indicator. The economy is in an upturn; the jobs will come. You could help teach this truth, or you can spread fear, uncertainty, and ignorance, for political purposes. I think I see the decision you've made.

It's also important to take into context the 9/11 attacks and subsequent war on terror. Investors and businesses always put things on pause during times of turmoil. It's not a coincidence that the market started to recover after Saddam was removed from power.

Originally posted by rtwngAvngr As you well know, jobs are a lagging indicator. The economy is in an upturn; the jobs will come. You could help teach this truth, or you can spread fear, uncertainty, and ignorance, for political purposes. I think I see the decision you've made.

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and you know more about economics than all of these economic majors? spare me.

Jobs can be all the lagging indicator that you choose them to be, however, people will vote as to how they are employed, hence my title about 'how will it pan out for the election'.

What truth should I teach? Shall I teach about my own experience where It took 6 months to find a new job at 2/3rds the salary I was making? Or how about the truth of 2.3 million jobs lost vs half a million jobs gained?

Many of the jobs during the bubble were financially unjustifiable - and existed only because clueless investors through money at insane business models with no hope of ever turning a profit.

I experienced this at ground zero in the Bay Area. Kids (and I do mean kids) with very little experience all of a sudden were making six figure salaries. This income inflation soon spread across most job categories.

So, now that the bubble has burst, the bogus jobs are gone, along with their inflated compensation structures. This makes the current reality look much grimmer in comparison. It's sad that many innocent, competent people have been hurt by the transition. But the real blame lies in a fraudulently inflated business cycle which arose from the confluence of the Y2K tech rush, the dot.bomb scams and the telecom bubble.

New state unemployment claims rise by 14,000, come in a bit higher than Wall Street forecasts.
January 8, 2004: 12:07 PM EST

NEW YORK (CNN/Money) - New jobless claims rose in the United States last week, the government said Thursday, coming in slightly higher than Wall Street forecasts.

The Labor Department said 353,000 people filed new claims for state unemployment benefits in the week ended Jan. 3, compared with an unrevised 339,000 the prior week. Economists, on average, expected 345,000 new claims, according to Briefing.com.

The four-week moving average of new claims, which irons out the volatility of the weekly data, fell to 350,250 from an unrevised 355,750 the prior week. It was the lowest level for the four-week moving average since the week of Feb. 3, 2001.

Continued claims, the number of people out of work for a week or more, fell to 3.27 million for the week ended Dec. 27, the latest data available, from a revised 3.285 million the prior week.

On Wall Street, stocks rose modestly after the report, while Treasury bond prices were mixed.

The department is set to release the December jobs report on Friday. Economists, on average, expect that unemployment held steady at 5.9 percent while payrolls outside the farm sector grew by 148,000 jobs.

Though the unemployment rate has fallen from its mid-summer peak of 6.4 percent, payrolls outside the farm sector are still 2.4 million jobs smaller than they were in February 2001, marking the longest such stretch of payroll pain since World War II.

Tax-rebate checks, along with the proceeds of a wave of late-summer cash-out mortgage refinancing, helped push economic growth up to an 8.2 percent rate in the third quarter, the best in nearly 20 years.

Analysts hope the third quarter's growth will kick the economy into higher gear in upcoming quarters.

That would create more jobs, as well as accelerating wage and salary growth, which would tend to bolster economic growth in the long run.

Recent jobless claims reports have helped support this view, but consumers are not yet convinced -- December sentiment surveys have shown lingering anxiety about the job market.

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